Keurig Dr Pepper Inc (KDP) 2011 Q1 法說會逐字稿

Good morning, and welcome to Dr Pepper Snapple Group's first-quarter 2011 earnings conference call. Your lines have been placed on listen-only until the question-and-answer session. Today's call is being recorded and includes a slide presentation which can be accessed at www.DrPepperSnapple.com. The call and slides will also be available for replay and download after the call has ended.

(Operator Instructions)

It is now my pleasure to introduce Mr. Aly Noormohamed, Senior Vice President of Finance. Sir, you may begin.

Thank you, Wes, and good morning, everyone. Before we begin, I would like to direct your attention to the Safe Harbor statement and remind you that this conference call contains forward-looking statements, including statements concerning our future financial and operational performance. These forward-looking statements should also be considered in connection with the cautionary statements and disclaimers contained in the Safe Harbor statement in this morning's earnings press release and our SEC filings. Our actual performance could differ materially from these statements, and we undertake no duty to update these forward-looking statements.

During this call, we may reference certain non-GAAP financial measures that reflect the way we evaluate the business and which we believe provide useful information for investors. Reconciliations of those non-GAAP measures to GAAP can be found in our earnings press release and on the investor relations page at www.DrPepperSnapple.com. This morning's prepared remarks will be made by Larry Young, Dr Pepper Snapple group's President and CEO; and Marty Ellen, our CFO. Following our prepared remarks, we will open the lines for your questions.

With that, let me turn the call over to Larry.

Thanks, Aly, and good morning, everyone.

As I hope you saw in this morning's earnings press release, we are off to a fast start in 2011. The investments we have made in our supply chain, our organization, technology, and, most recently, rapid continuous improvement are providing a solid foundation, allowing us to capture the latent potential of our brands in this business.

For the quarter, bottler case sales increased 1%, lapping double-digit growth in Crush, Snapple, and Mott's. Dr Pepper was up 1% on strong fountain gains. Sun Drop achieved 89% ACV distribution in grocery for the 4 weeks ended March 26, adding 3 million incremental cases in the quarter. Given a still value-conscious consumer, we continue to see strong growth in Hawaiian Punch. Snapple was up 10% as we rolled out the 64-ounce package nationally, and leveraged the tie-in with The Amazing Race. Mott's declined 8% as we lapped 14% growth in the prior year, and double-digit price increases took effect at the beginning of March.

For the quarter, currency-neutral net sales grew 6%, reflecting solid volume growth, 3 points of growth related to the Pepsi Coke licensing fees and repatriated cases, and 2 points of growth from pricing. Segment operating profit on a currency-neutral basis was flat, as we absorbed almost $50 million of input and transportation cost inflation in the quarter. Additionally, margin investments increased $14 million to support a front-half loaded innovation calendar, as well as Diet Dr. Pepper's integration into Cougar Town and national advertising for Canada Dry. With strong performance below the segment operating profit line, specifically corporate, interest expenses and taxes, and with an 11% reduction in share count, diluted earnings per share grew 25%, to $0.50 per share.

As we shared on our February earnings call, we kicked off 2011 with a very strong pipeline of new products, including the national launch of Sun Drop. I'm thrilled with our progress on Sun Drop. It's not only gaining share and driving growth in the citrus segment, it's also quickly becoming a fan favorite with over 4 million views of its TV spot on YouTube during its first 4 weeks on the air. Consumers also love its thirst-quenching citrus flavor, with repeat purchases outpacing the launch of Dr Pepper Cherry.

And Snapple -- our 64-ounce multi-serve package is a home run, driving almost half of Snapple's volume growth in the quarter. ACV and grocery reached 34% in March, leaving us plenty of room for more growth.

With its bold taste and unique, innovative blend of sweeteners, Dr Pepper 10 is having a positive impact in its 6 test markets. The male-oriented advertising campaign, and our very own mobile man-cave, are driving trial and awareness. Consumer feedback and repeat rates are strong, so we may look to launch the product nationally in Q4.

Hawaiian Punch's new 10-ounce six-pack offering is bringing new users into the franchise and is allowing families to enjoy the great taste and value of Hawaiian Punch on the go.

Now, let me highlight some of our current and upcoming activation plans, which will keep this strong momentum going through the summer. To further engage the hispanic consumer, Dr Pepper recently named platinum recording artist, Pitbull, as the brand spokesperson for the 2011 Vida 23 marketing campaign. We also unveiled our newly designed Dr Pepper Club 23, a fully customized traveling club, where fans can sample the 23 flavors of Dr Pepper while dancing to the sounds of DJ Nino and enjoying the latest gaming technology. As part of its summer tour, Dr Pepper Club 23 will make stops in Miami, New York, Chicago, Los Angeles, and Houston.

Snapple's season-long partnership with CBS's The Amazing Race culminated with the unveiling of 2 limited time offers -- regular and diet papaya mango tea. Snapple was fully integrated into the show's March 27 episode, as the teams traveled to India to collect ingredients to create the perfect tea. This product is already a huge hit with consumers and is driving incremental growth for the trademark. We will continue to support the brand with TV advertising throughout The Amazing Race season and with national sampling activities. Snapple is also sponsoring The Amazing Race 10-year anniversary celebration, in Miami, on May 7.

7UP is partnering with The Celebrity Apprentice to get fired up. This promotion will give consumers the chance to win a VIP trip for two to attend The Celebrity Apprentice live boardroom finale and after-show party.

And finally, we are partnering with Marvel Studios to bring audiences the 2 biggest movies of the summer -- Thor, opening nationwide on May 6, and Captain America, opening nationwide on July 22. Dr Pepper's Quest for the Can promotion is already underway and offers Thor fans the opportunity to win super-powered experiences, including the opportunity to ride in a fighter jet or a super car. Core 4's Captain America promotion will offer consumer's the opportunity to win 1 of 13 Harley Davidson motorcycles during the 13 weeks of summer. Both promotions feature limited-edition collectible cans, and as an added bonus, fans will also receive a free 1-month subscription to Marvel digital comics when registering for the promotion.

Now, let me turn the call over to Marty to walk you through some of our below the line items and 2011 guidance.

Thanks, Larry, and good morning, everyone.

I'd like to take you through our full-year guidance and give you an update on the great progress we are making in rapid continuous improvement. Before I do that, however, let me review below the line P&L and cash flow items impacting the quarter. Corporate costs were $10 million lower compared to the same period last year. The absence of PepsiCo transaction-related fees reduced corporate cost by $8 million. Other favorable comparisons include lower productivity office investments, and a $3 million favorable savings in mark-to-market commodity hedges. Partially offsetting these were higher industry association fees and increased stock compensation costs.

Net interest expense was $7 million lower, as we benefited from lower interest rates, primarily driven by the tender offer and refinancing transaction we completed in January. Our effective tax rate for the quarter was 36%. This included a $3 million, or 170 basis-point benefit, related to the PepsiCo and Coke transactions. With respect to our focus on working capital, we continue to drive improvements in our cash-conversion cycle and we're tracking well ahead of our 3-day improvement goal for the year.

For the quarter, capital spending totaled $54 million, and we returned $156 million to our shareholders in the form of dividends and share repurchases. As you saw in today's press release, we continue to believe that we can achieve 3% to 5% net sales growth in 2011 and full-year diluted earnings per share in the range of $2.70 to $2.78. Despite rising commodity costs , higher gas prices, and continued other macroeconomic pressures, we see reasonably steady consumer purchasing patterns, notwithstanding the price increases taken by us and our retail partners.

Given our encouraging first-quarter performance, our strong innovation pipeline, Sun Drop's national expansion, our other targeted-brand initiatives, and our opportunity to further improve distribution and availability, we believe we can achieve 1% to 2% volume growth this year while also realizing low, single-digit price increases.

With oil up more than 25% since our last earnings call, we are clearly seeing the impact of higher PET, fuel, and even corn costs. At forward prices for our unhedged positions, we now expect packaging and ingredients to increase total cost of goods by 7% to 9% on a constant volume mix basis.

Transportation costs, included in SG&A, are now expected to increase approximately $35 million for the year, assuming current prices for fuel. Partially offsetting this approximately $50 million increase in packaging, ingredient, and transportation cost since our earlier guidance, include the momentum we achieved in the first quarter -- about 50 basis points of incremental pricing for the balance of the year, incremental productivity in manufacturing and in general and administrative expenses, and the favorable impact of foreign currency.

With better-than-expected performance in the first quarter, we're also looking at incremental opportunities to invest in our brands, and this investment could be $10 million to $20 million. We continue to expect our full-year tax rate to be approximately 35%, which includes an $18 million one-time benefit related to the PepsiCo and Coke transactions. For modeling purposes, let me remind you that Q2 remains our most challenging quarter for the year. We expect packaging, ingredients, and transportation cost to be up almost $70 million on a constant volume mix basis, compared to the second quarter last year, and marketing cost to be up low double digits to support a front-half loaded innovation calendar.

In terms of cash flow, we will continue to drive improvements in our cash-conversion cycle, targeting at least a 3-day improvement in 2011. Capital spending is expected to be approximately 4.5% of net sales.

Finally, we remain on track to repurchase approximately $400 million to $500 million of our common stock in 2011, subject to market conditions. With respect to rapid continuous improvement, we are very encouraged by the changes occurring throughout the organization underpinned by RCI. We are eliminating waste in all aspects of the business, in the selling process, in marketing and promotional execution, in delivery, in manufacturing, and in back-office functions.

In the quarter, we completed 25 improvement events, so let me take a moment to just highlight a few. In 1 region, we reduced non-value selling time by 1 hour per day and improved our back-room footprint for the customer. This win can be replicated across the entire DSD business. We learned how to accelerate the deployment of cold-drink equipment; and in marketing, we completed a project that will allow us to accelerate the implementation of various marketing programs that increases our speed to market.

We've had many supply-chain improvements. Here, let me share 1 data point, as a measure of improvement. In our warehouse direct business, cases in inventory at the end of March were down almost 10% from March of last year, while sales volume in cases was up 4% for the quarter. This will also significantly lower transportation and warehousing costs.

2011 is our initial year. The organization is learning the tools of RCI and is developing the right mindset. The engagement from Larry and the entire senior management team, down to our shop floor employees, is beginning to create an organization aligned around improving all aspects of value-creating activities. We are still in the very early days of RCI, but we are very pleased with our results.

With that, let me turn the call back to

Thanks, Marty. Before we open the lines for questions, let me leave you with these few thoughts.

We entered 2011 stronger than ever. We're executing our focused strategy, and it's continuing to pay dividends. We're gaining distribution and availability, increasing our share of immediate consumption occasions, and taking full advantage of the cases we repatriated from the Pepsi and Coke systems. It's no secret that higher input and fuel costs pose a significant threat to an increasingly healthy, but still-fragile consumer. We're balancing volume growth with measured pricing and are continuously looking for ways to drive productivity and invest incrementally in our brands.

Finally, our organization is embracing RCI, improving safety, quality, and delivery while eliminating waste. The breakthroughs we've seen so far are truly inspiring, and as we systematically replicate them across the Company, we will unleash resources to fuel growth in 2011 and beyond.

Operator, we're ready for the first question.

Thank you. (Operator Instructions). Wendy Nicholson, Citi Investments.

Good morning. I wanted to follow-up with the guidance for the full year on the top line, and given how strong the first quarter was -- hello?

Hello?

Hi, can you hear me?

Yes, I can.

Okay, so the question is regarding the top line guidance and the maintaining of the range, if you will, for the full year, why you're not either raising that range or leaning toward the higher end given the strength in the first quarter, and I'm wondering if some of the strength in the first quarter was just inventory fill , so are inventories currently inflated at retail, or where do you see it

No, I think -- Wendy, good morning. It's Marty. No, I think there is no inventory fill, there's no excess inventory in the channels that we can identify, so we don't do that as a factor. Again, our guidance is based on the fact that we see 1% to 2% underlying volume growth. As I said in my prepared remarks, we expect to take a little more pricing balance of the year, and we will have 2 to 2.5 points -- that will give us 2 to 2.5 points of pricing for the year, and more or less that keeps us in the range. FX so far has been a little favorable, so if rates stay where they are, that should continue. But it keeps us within the range of the 3 to 5 points. And, with respect to costs, well, costs are up, and we talked about them being up now 7% to 9%, and a the COGS line of $35 million in transportation. Again, a little pricing against that, productivity improvement against that, when we put it all together, we still see us coming in within our range.

And just two follow-up questions to that. First, in terms of where we are a third of the way through the year, the promotional environment and how much it's costing you to compete, would you say that it is marginally less favorable, more favorable than you expected maybe back in January? And then, second thing, on the incremental investment you talked about, maybe having the flex to spend a little more, would that be more on the promotional site, so a contra-revenue item, or more on the advertising line? Thanks.

No, on the pricing, we're still seeing very disciplined pricing out there, very rational. I would say it's not really changed that much from what we saw in the fourth quarter and what we were looking at. I think another one of the pieces there, and you talk about the reinvestment, as Marty talked, we may look at spending $10 million to $20 million on our brands. I talked about the success of Dr Pepper 10. That's going to take some money if we pull that forward. So, a lot of it is still work in progress, Wendy, but I would say you're going to see most of it actually going toward the brand.

Terrific. Thank you so much.

Steve Powers, Bernstein.

Hi, good morning.

Good morning.

So outside of Dr Pepper, Canada Dry and Sun Drop, which the strength of which you called out in the release, CSD volumes remain kind of notably negative across the rest of the Core 4, including Crush now. I guess, if you could just give us a little bit of a sense for how you expect -- is that in line with your expectations, below or not? And then how you expect the growth trajectory of those brands to trend as you look out over the remainder of year and into 2012?

As we look at them, they are lapping some very strong numbers in Q1 and Q2. And so, I'm not really concerned about it. We've got great plans in place, as I mentioned in my prepared remarks, you saw we've are going to be doing some things with 7-Up, so we're going to be seeing that come in. We look at our CSDs as, we really haven't changed, they're going to be flat to up 1, and then our non-carb businesses is going to be up 2 to 3, so it pretty well falls right into place where we were looking. Also on our pricing, what we can get on pricing, we'll do very opportunistically.

Okay. And then with brand Dr Pepper, I think if you X out the fountain food service volume growth, that brand too experienced a decline. Do you expect that brand to grow, excluding the fountain food service gains over the course of the year?

Yes, the fountain food service continues to do real well. We've got a lot of programs on our Dr Pepper . Dr Pepper was lapping some strong numbers the first quarter plus also, we had the activity, with a lot on the Cherry Dr Pepper. So, we feel very good. Our partners are all doing a great job, got great plans in place, we've got a lot of good summer promotional activity out there, and the per caps are still looking good and growing so we're happy with

Great. And lastly, on RCI, the incremental kind of opportunities your identifying this year, how much of that do you attribute just to the maturation of that process internally versus kind of a sense of urgency due to the commodity cost environment? How much of this do you think would've happened regardless, versus driven by the environment?

Well first, when you say maturation, we've only been at it 3 months, and so I would say we couldn't -- I wish we had started sooner, given the cost environment because costs will clearly benefit, cost reductions will of course result. My view, Larry's view, the team's view is we have gotten probably -- we're probably further ahead now than at least I would've thought we would have been at this point in terms of engagement. I shared a few highlights, and those highlights talked to the breadth of, we can actually grow sales, we can actually speed time to market, which grows sales, we can actually make things more efficient in the supply chain, and why I didn't say in my prepared remarks, I will say it now, we clearly stand behind the $150 million in productivity improvements that we said we would get over 3 years beginning of this year. And I would say results so far this quarter are very, very encouraging toward that goal. And sure, the results to the extent that we eliminate waste and reduce costs, it does certainly help us offset the headwinds of commodity inflation. We've said we do have productivity, some level of productivity savings built into our guidance to offset the increasing commodity cost, one of the factors that allows us to keep our guidance where it is.

Great. Maybe it's too early to say, but does this $150 million number that you've thrown out there a couple of times the last couple of quarters, it sounds like is this pulling forward that opportunity into 2011, or is this likely incremental to that over time?

I'm not going to change that or try to bucket it for you. I would remind everybody, it is $150 million of productivity, not all cost, so that includes working capital efficiency, capital spending efficiency. Again, I called out that in one part of the business, WD, cases on the floor down 10% while sales growing to the business, and of course it goes without saying with even higher service levels to our customers. I think, when you translate that across the business, almost every inventory location where we've done projects to, in essence, improve -- delivery's never been a problem. We focus on delivery, how to get product to the customer faster, looking at other ways. Almost every location, from warehouses to distribution centers, even some plants, after about a week or 2 weeks time, we're seeing days inventory drop by 70%. So, that's something that is large. It's not 10%, it's not 20%, it's 70%. I'm not saying we could operate the business on $100 million of inventory either, but if you think about it, you might be able to. I'm not predicting that, but it's compelling.

Great. Thanks very much.

Christine Farkas, Bank of America.

Thank you very much. Good morning.

Good morning.

Larry, I wanted to get back to your comment that consumers patterns appear to be steady despite price hikes taken by manufacturers, and I guess higher gas prices as well. We've seen Snapple growing. I'm wondering if you can comment a little bit on the dynamics of pack sizes or channel performance. Have gas prices impacted your C-store trends or immediate consumption trends at all?

Our single serve is still doing very well, Christine. I think a lot of the -- as we look at the consumer, we are still seeing traffic in the C&G. We're seeing the trend to be spending a little bit more, a little uptick very in C&G and quick-serve restaurants. I think a lot of times when we look at the gas prices, they're not as high as they were. They vary by geographic territory. But I think a lot of it was, whenever the prices got high last time, I've said before, the entire -- the markets had crashed, everything, the economy was bad. I think people are feeling better about the economy. They are feeling that there is some upside. When you look at the C&G, so much of that loss in 2008 was construction. And, so, I mean as we factor that out and look at, I still have a positive feel out there. We are cautiously optimistic, but we're seeing the right trends. The pricing hasn't seemed to really affect it that much. We track the pricing very closely and measure our promotions, and our business is looking pretty steady right now.

And on the back of that, Larry, when you talk about pricing not impacting those trends, I guess one question is, were the elasticity expectations just super low as the manufacturers took pricing, or are you actually seeing elasticity improve this cycle or just come in better than expected because yourself and Coke as well are talking about accelerated pricing in the remainder of 2011?

Right, exactly. And I think the biggest thing there, Christine, is it's not just us taking pricing, everybody has taken pricing. I mean, across the board. And, if you look at ours, the main prices are in juice. We had double digit pricing there, but it's across the board in all the channels, the pricing. And it's something we watch constantly. We do a lot with our packages. We do package mix changes, but our single serve is one of them that is just really makes us happy. The elasticity is holding, I'd say right now, kind of in the low single digit .

Okay, that's helpful. And just a clarification, Marty, on the guidance. I'm just looking at your corporate expense or outlook for 2011. Do you expect that number to be higher this year versus a year ago?

Let me clarify corporate spending. We need to go back to the beginning of the year. At the beginning of year, we said corporate costs would go up $18 million. That hasn't changed. The increased cost were industry association fees, some of our philanthropic programs, as well as higher stock-based compensation. And, all of that was roughly $21 million. Against that last year, we had net $3 million of higher cost, and Pepsi and Coke fees on the one hand were $11 million in cost, and we had in total about $8 million of some one-time pension gains last year, so we had a net $3 million in cost last year versus the $21 million and that's the $18 million , that's not

Okay so the timing of the first quarter in terms of your year-over-year comparisons is really just that. It's timing, and the corporate expenses should still be up slightly year-over-year.

Yes, and some of these costs were already in the quarter. Stock-based compensation was in the quarter, up a couple million. So, these costs are occurring. So, to the extent that they are in there, we have had some other cost reductions.

Okay. Great. That's helpful. Thanks so much.

Kaumil Gajrawala, UBS.

Hey guys.

Good morning.

Good morning. So, if we could talk a little bit about Sun Drop. It looks like the rollout went well, or is going well. Is it too early or could you give us some context on what the repeat rates are looking like?

Yes, it is still early. I mean you're correct there, but we are just thrilled with the performance we're seeing. The execution, the distribution out there ahead of plan. As I mentioned earlier, we've got 89% gross for ACV. We are 42% in our convenience channel, so there's still lots of opportunity in the C-store. The Sun Drop is really getting a lot of hits, a lot of news. The social media is really playing well on it so, we are excited about it. I mean, it's a long-term brand. It's something that we're just not going out there and in and out, boom splat. We've got the relationship with MTV that's going to be handling the marketing and the promotion, and that just continues to build. We're seeing lots of positive momentum there. And, the repeat, it's selling better right now. The repeat is better than what we had on the Dr Pepper Cherry, which is just very, very encouraging because that is one of the best we've had. So, I was in the market last week. I went out across some of the Midwest markets. It's exciting to see, the citrus category really kind of exploding.

Got it. And, if I could ask a bit more on the $10 million to $20 million of incremental spend, is that slated for any particular brand?

It's still kind of a work in progress right now, but as I mentioned a moment ago, if we pull Dr Pepper 10 forward, that would be some of it there.

Got it. And then the final question, related to C-stores you mentioned consumers holding up despite gas prices and price increases, but could you be a little bit more specific on C-stores what you are seeing there?

Yes. I think what I would start with there is, we have a lot more opportunity in the C-stores. We just talked about Sun Drop. We are doing a lot of things with different packaging and new packaging. We've got traffic driving activities for the balance of the year, and then we've got a lot of strong movie tie-ins. So we've got a lot of activity out there to help us to keep closing some of the gaps we have out there. In our immediate consumption and our company owned is up around 1%, so, that's encouraging, and you know, as everybody knows, that's where we make some good money on those. There's still availability and distribution voids out there that we're closing, and these activities will help us do it.

Got it. And from a market perspective, you feel that the consumer still is fine, nothing is derailed due to gas prices.

It's not derailed. Like I said, it's healthy but still somewhat fragile. But, when I am out with certain customers and some of our chains, I think everybody is getting a lot better feeling about it. We're going to have some more pricing out there that just kind of goes in with the basket of everything that is going on but it's actually benefited CSDs. If we look at 2008, I think when everything -- the economy kind of crashed, and people were so concerned. We really watched a lot of people come back into carbonated soft drinks and truly see the value of carbonated soft drinks, and I think we are starting to see some of that again.

Got it. Thank you very much.

John Faucher, JPMorgan.

Morning, John.

Good morning. How are you guys doing today?

Good.

Excellent. I'm going to ask you the question I asked Coke yesterday as well, which is, if we look at a lot of the scanner data, and it maybe doesn't include all the convenience store data, the pricing in CSDs generally doesn't look as rational as you're discussing it. So can you talk a little bit about what we are not seeing in the pricing, and why it is better than maybe what it appears from the scanner data? And then, can you also, you talked a little bit about the different pricing levels across the categories. Can you give us sequentially, as we look at pricing, should we expect more of an improvement on the juice side, which tends to be more raw material focused, or more sequential improvement on CSDs? Thanks.

I think you're exactly right, John. The Nielsen's and the IRI don't even cover 50% of the market, but it also doesn't pick up and tell a true story, when you have a retailer that is investing in an ad. So we look at the pricing that is going in, not necessarily what the retail price is that a certain retailer would pick on that. So, I think that distorts it a little bit. We see a lot of them using carbonated soft drinks in certain geographic territories to drive traffic. So with that and the activities we're doing on promotion to drive traffic, I think it's going to keep our brands very healthy in there. Also, on Nielsen on peak three, the year-to-date total category, CSDs were up a couple of points and teas were about flat, but the juice is up two. The juice increases we have put in our end, and like I said they were double digit . You saw a little bit of a hit on Mott's there, coming across a 14% of a year ago, but we feel very confident with the plans we have behind Mott's that we can bring that thing back in with the

Okay. Got it. And a little bit more on the timing from that standpoint. I mean, given that the raw materials impact you're looking for in the second quarter, and then a slightly, more difficult comparison from a volume standpoint, and then also the potential for corporate higher year-over-year. As we look at it, it sounds like that's going to be easily your toughest quarter. And, it looks as though we should look -- is the way to look at that the big beneficiary from an earnings standpoint in that quarter is going to be just simply the repurchase and everything else is going to sort of offset the share repurchase? Is that the right way to look at numbers for the next quarter?

No. I will let Marty answer part of that. I mean, first, I'll kind of help you with the pricing . If you look at our warehouse direct, we took our first round of the pricing there. It went into effect March 1. The second round will be around June 1. And then, our CSD business is very opportunistic. It varies by geographic territory, but it's been , some have already pricing in. We're not seeing a lot of push back on it, and we haven't really seen the volumes get affected by it. I'll let Marty answer the second half of

John, as I said in my remarks, Q2 is clearly the most challenging because we are going to lap low cost from last year that's going to be a $70 million increases this year. We will, and we are continuing to purchase shares through the quarter, and as we said, we're still looking to do $400 million to $500 million this year. We're not going to comment specifically on numbers by quarter other than to say that if you think through the higher cost, you guys will all model whatever you want to model for the effect on EPS and share repurchases. You'll get to some number for the quarter. It's clearly going to be the most challenging.

Okay. Great. Thank you.

Judy Hong, Goldman Sachs.

Thanks, good morning.

Good morning, Judy.

Just following up on the volume question, I guess in the quarter, US volume was flattish. You're still expecting acceleration to 1% to 2%, so just wondering in the back half, which brand, is it more Snapple that continues to sort of carry the momentum, or if you are more confident in some of the CSD brands that you think will carry the acceleration on the volume fund as the year progresses. And then, in terms of your market share performance, in the first quarter you did call out that you lost share in CSD, so just wondering if you can give some perspective on the market share situation and how you see that progressing as the year progresses?

Yes, on the volume, Judy, of course we've got Sun Drop out there, and we're testing the Dr Pepper 10. There will be some more of that toward the end of the year. But the majority of our volume is being driven by Dr Pepper, Snapple. We see a lot that we are going to be able to do with the Mott's brand as a total. Our Hawaiian punch continues to do well, and we are just thrilled to death with what Canada Dry has been doing. So, that's going to drive a lot of it for us. If you look at what we're lapping in Q1, the Nielsen numbers we did call out that we lost a little bit of share there. But it was just what we were lapping in the first quarter before, as I mentioned, Mott's was up 14%, Snapple was up 17%, Crush was up 22%. And if you take the total share, we gained in all channels except convenience. And, in the convenience channel, the Sun Drop and Mountain Dew are feeling strong growth in citrus. It's up 6%. And as I mentioned a moment ago, we still have a tremendous amount of opportunity in convenience and gas.

Okay. And then, as you think about your brand portfolio, as we are coming out of the recession, I think you are seeing acceleration in growth and some of the non-carbs categories that historically have been growing much faster, whether it's enhanced water, or ready-to-drink coffee, or energy, et cetera. So, wondering at this point if you are looking to participate more actively in some of those non-carb categories. Obviously, you got Snapple, but outside of the tea category.

No, we're still very happy with our portfolio where we can play, of course, with the juices. Our Snapple, regionally we have, we play in water, especially in the Southwest with our Deja Blue. Our Venom Energy, we've got programs behind it for the year to play in the energy category, but we're still very -- we stay focused on the total portfolio, but we are putting a lot of emphasis right now on our carbonated soft drinks. As I mentioned a moment ago, I think with the tough economic times we're going to see people come back in and recognize that value. That's where we're putting a strong focus. Snapple we think will just continue as it is. It's been a great success story for us. And, the Hawaiian punch as the economy is tough, Hawaiian punch is a favorite of moms out there.

Okay, thank you.

Caroline Levy, CLSA.

Good morning, everybody.

Morning, Caroline.

Hi, a question on the outlook for costs for 2012. If prices of inputs were to stay at current levels, what are your hedge positions like on 2012, and it seems like you've been hit a little harder than some people this year. Could there be some relative benefit to your next year, do you think?

Well, were not going to -- we've never really commented on our hedge positions other than we do have some positions that to go out into 2012. That's hard to dissect everybody's, in this space, everybody's inflation numbers as they are talking about them. Some numbers we've seen, we sort of say that the increases, others are experiencing, unfortunate to us are about the same impact. We are reasonably hedged. I would say we have good visibility out the next 3 to 6 months. And, we feel good about that. Beyond that, we do have some hedges, and we will look to change those positions over time as we normally would. But that's about all I can say at this point.

Okay, and then if I go to price mix in the quarter, can you help us understand how much was price and how much was mix?

Well, we had about two of price in the quarter.

So, does that suggest mix was negative?

No. It was about flat. So again, if you look at, I think we laid it out in the press release, but let's just go through almost 7 points of reported sales growth, you get about two in pricing. If you look at the total effect of Pepsi, Coke licensing agreements, so both the effect of the deferred revenue amortization as well as the top line impact associated with the repatriated cases, since those are now DSD cases and not concentrate cases, the combined effect of those 2 were there.

Yes.

And then you get a little bit of volume and a little bit of that back, should reconcile to 7%.

Okay. So just to clarify, mix was slightly positive, that what you're saying?

Maybe slightly.

Because you had talked about single serve growing and C-stores doing well. So, why would mix not be more positive?

It's -- the mix for us, that channel mix is good, but one of the biggest mix factors for us is both across the components of PB and within those. So for example, HP is doing very well, and as most of you know, it's a very of low NSV per case product.

Okay. And then, if I could also just clarify, of the $70 million incremental cost in Q2, how much is in COGS and how much is in SG&A?

I think you're going to roughly come into about $40 million to $50 million in COGS.

Okay. And then finally, just looking at brands, within Dr Pepper, can you sort of explained the moving parts there? Where, I think the base Dr Pepper is growing. What's happening on Diet and Cherry, and is 10 just a tiny test at this point?

Yes. Were happy with all the portfolio, Caroline. We have -- the 10 is in 6 markets, like I said, the result are fantastic. We're very happy with it. But, it's very small whenever you look at the base of Dr Pepper. Our fountain food service is doing very well on the Diet Dr Pepper. It's also coming in on the fountain. So, the Cherry is stabilized out there, but we're still seeing great growth in the coastal markets and our low per cap markets where we really came out with the Dr Pepper Cherry for those markets. So, I think it's a good balance across the trademark. And, we're going to have some great activities for the summer. I mean, we're going to see a lot of traffic driving promotions and we're pretty pleased with it. We're looking at it, saying it about where we planned, and it's falling in line.

Okay. And I was excited to hear about some of the Hispanic marketing you're doing, but do you have a sense of whether your brands skew particular favorably, or which brands do, among the Hispanic committee?

Very favorably. Very favor flavor.

Okay. Which is everything, basically? Juices too?

It's 7-Up, our Sunkist, Dr Pepper, especially with us coming out with Pit Bull, as everyone knows probably the top brand is Squirt, not only with the Hispanics in the US but in Mexico, so we've got a really great portfolio that has been playing well in our 21 targeted Hispanic markets.

Great. Final question, I expected you to buy more stock back in the quarter. But, do you think this is just a reasonable run rate for the full year, maybe pick up a little bit to get your $500 million?

$400 million to $500 million for the year, so we spent $100 million, you would obviously expect that to be up a little bit balance of the year on a quarterly basis.

Okay. Thank you very much.

Brett Cooper, Consumer Edge Research.

Thank you. Good morning. Just a quick question on the incremental pricing you guys are expecting. You talked about 50 basis points. Relative the original guidance you gave at the beginning of year, was the June juice price increase included in the original number?

No.

And was that the source of the 50 basis points?

It's a large piece of it, but is not all of it, because we've got it in CSDs. I would say you'd be looking at probably a 65/35 split, maybe somewhere in there. A good third of it in our DSD CSD business.

And so would you be expecting it to be an industry price increase post-Labor Day? Or are you going to look to take CSD pricing over the course of the summer?

As I said, we'll do it opportunistically. I don't really have the visibility to say exactly when it would be. We have markets that have already taken it, and we have markets that have plans in the next 2 to 6 weeks.

Thank you.

Ann Gurkin, Davenport.

Good morning.

Good morning.

Just wanted to get an update on where we are with cooler placements, and are you getting the lift from his incremental placements?

We are. We're on track. I just had a meeting, as I said I was in the field last week with the guys. We're in our third year . As I mentioned last year, the first 3 years are always the easiest, so we are very happy with how they are coming in. We are going to stay with that strategy, we're going to continue it, but as we get into year 4 and 5, you got to be a lot more disciplined to make sure you're still getting the returns that we expect. The returns have been great, and we want to make sure that we maintain that, that we don't start eroding our own margins on our cold

Right just a clarification on the $10 million or $20 million potential increase in brand investment, is that already in your numbers?

Yes.

Yes it's in our numbers.

Okay, great , thanks very

Andrew Keeley, Deutsche Bank.

Hi, everybody.

Hi, Andrew.

Hi. So I would just want to ask about the food service channel. That's been a good growth driver for the brand Dr Pepper. If you could talk about what inning or what penetration level we are in with the brand in that food service channel, as a driver going forward. And then, your commentary just now about the C Stores trends, which look like they softened the little bit in terms of market share. Can you just talk about what you think is behind that?

Well, I'll start with the fountain piece of it. If you look at where were at right now on regular Dr Pepper we're probably somewhere around 50% and then, about 20% on Diet. So, I mean that gives us a long, long runway of opportunities is right there, and the fountain food service team just keeps amazing us on how many new valves and voids they close each year. And, the momentum just continues to build as we get them out there. We get a halo effect from the competitors that are around them wanting the Pepper and Diet Pepper on also. The other part of the question on convenience, our convenience is continuing to grow. Our single serve is growing. We did on Nielsen show some numbers, that was the only channel we really lost in. But it really hasn't concerned us. I mean, we watch it constantly, but we watch much more the volume, what our velocities are doing, and how we continue to close distribution voids and close those gaps.

Okay. And I just want to go back to the Core 4 and how the competitors are sort of looking at the flavor category, I guess specifically on fruit flavors. Do you see -- it seems that more attention is going there, do you see that, and how would the brand like Fanta, what is the interaction on something like that versus a Crush, for example?

Well, all the attention is good. It drives more people into the category, we get more traffic. Fanta is a great brand. You get a out there. It's what we've done all our lives is, you fight on the street, each brand. So, I think it's going to be good for the categories. We're going to make those segments grow. We're very comfortable with our brands, because they are number one, number two in their categories. We've got a lot of promotions behind them. As I mentioned a moment ago, 7-Up is getting ready to do some things with Celebrity Apprentice. We've got movie tie-ins with our Core 4 this time. Our bottlers are very excited. Our tie-ins have usually always been the Dr Pepper, and now we have them with the Core, so we've got a lot of plans in place that will continue to build, help close the distribution voids, and keep giving us our volume growth.

Okay and just last question on the SG&A and marketing spend. This quarter on a relative basis, it was down, good control over the SG&A line, even with the stepped up marketing activity. In some of the recent commentary, it seems like there was some new discussion about keeping the marketing budgets or marketing dollars flat for the year. And so was that a function of the commodity pressure? Do you have enough flexibility in terms of marketing dollars for the year? Any constraints there?

First of all, we said this morning we could take marketing up $10 million to $20 million, so that's maybe new information, because we had talked about flat marketing. And, it is unrelated to what's happening with the commodities. We have opportunities to invest properly and particularly if we accelerated Dr Pepper 10, we're not going to withhold the investment simply because commodity prices are up for the short-term.

Right, when we see brands respond to spend, that's what we really look and say, can we drive more growth and then, to Marty's point, the success we've seen with 10, we may pull that forward.

Okay. And, maybe one more for Marty. In the release there is, in the concentrate segment, there's a mention of unfavorable discount timing. I was just wondering what that refers to.

That refers to a carryover effect from the fourth quarter. It's the difference between accruing their spend back to bottlers on BCS, which is the shipment out of the bottlers versus our shipments into the bottlers, so you're always going to have a little bit of increase or decrease due to timing of what really is an accounting accrual.

Okay. Thanks very much.

Carlos Azul, Credit Suisse.

Good morning everyone.

Good morning, Carlos.

Larry, when do you see positive volume numbers again? For 7-Up, Sunkist and A&W?

While the Sunkist, Carlos, I'll take that one first, whenever we decided to roll Crush nationally, we knew that there was going to be some cannibalization on Sunkist. I think the thing we look at it is, is it actually better than what we thought it would be, so the category is growing, and we look at it and manage the total orange category there. So it's doing very well. With the Core 4, we also manage that Core 4 as a portfolio. We have a lot of growth coming with our Canada Dry. We just talked about what we are doing with the 7-Up. 7-Up had some really great, a couple of great quarters after we did the refresh and the launch on it. Were going to back that up with The Celebrity Apprentice, and then we are seeing a lot of positive momentum in our Hispanic market. So, we feel very good with those. I think we are going to see the brands stabilize in the summer, especially whenever you look at last year with the hot pricing activity that was out there. Our Core 4 brands were not included in that. So as the summer comes around, we are going to see a lot of upside there, and we feel very positive about that.

Larry, as you cycle your Coke and Pepsi agreement, what is your expected growth rate for the brands that are new to those networks?

There's no new brands in the networks, you mean --?

Crush, Canada Dry.

Well, on the Coke side, we don't set volume targets for our partners. We look at it and say, how is the brand performing, how is that category performing, how is the balance of the country performing, so we still look at and say, with our flavors they all tie together , the long-term, we're going to be looking at the total portfolio being up about

Thank you, Larry.

Damian Witkowski, Gabelli & Company.

Hi , good

Good morning.

Larry, I just wanted to confirm that your comments on EMEA consumption trends are current, not just as of the first quarter? You're still seeing pretty good strength in immediate consumption not just --

Absolutely.

And then, are you seeing a lot of difference in terms of geography? If you look at your bigger markets, Texas for example, employment actually I think is growing quite nicely, and the economy is doing a lot better than the US on average. So, are you seeing the differences in demand, based on markets that are doing a lot different in the immediate consumption versus others?

Yes. That's really hard to answer, but it is very geographic. If you look at Texas, and really do a deep dive on Texas, Texas was really delayed coming into the recession. So, I mean, we're seeing some markets that are actually stronger than what we're seeing in Texas. You can go all the way up to the Rust Belt and the Iron Belt where it was just hit the high, and even though it's still down, it's improving. We're seeing a lot of good activity in the Southeast and the Southwest. That's starting to come back that was hit the hardest, probably with building, construction, and items like that. Not where anybody wants them, but it's coming off a base, and its improving, so that encourages us.

Okay. And then, I know your pricing has been rational, and you haven't had to discount a lot, but do you think -- do you have any sense whether C-stores are actually discounting and taking a hit to their margins just to drive traffic a lot more today than they were 6 months ago?

I haven't' really seen that. We're doing a lot to drive traffic. Our promotions are to help drive it. They don't really ever do anything on the single serve, the single serve pretty well stays at the price points. There could be some activity on some others in the convenience channel. We're doing some things with one liter and with six-pack, giving some variety in there, but I think the biggest thing our customers want to see us do is promotions that helped drive the traffic in , because once we get them in there, it's not that big of a decision and not that big of an out-of-pocket experience for them, and our products will

Okay. And then just lastly, not that you really want to focus on it, but in the first quarter, weather. I mean, it couldn't have helped, I imagine.

It sure didn't.

Okay. Can you give us a sense of what it could have been I guess?

Well, you know, you just never can really dimensionalize that, but as everyone knows, in February the entire country had something bizarre going on with weather.

Okay. Thanks.

Mark Swartzberg, Stifel Nicolaus.

Hey, guys. Morning.

Morning, Mark.

Question for you on North America bottler case sales, basically flat in the quarter, I think they were 2 in the fourth quarter, 2 for 10, do you think that you are at the bottom in terms of rate of growth slowing, or do you think it needs to get a little worse because of the Crush laps? Where are we in this kind of slowdown?

Well, I don't really look at them as a slowdown. I've got some big numbers on lapping and I've got the promotions out there right now. As I mentioned a moment ago, Mark, we are lapping Crush at 22% growth, Snapple at 17%, Mott's at 14%. Those are some great numbers, and sometimes a little hard to beat those. But, with what we have going forward in our plans and our promotions activity, we are very confident.

So, obviously the market will bear, but do you think flat is as much as we'll see? You'll start bouncing off of flat or do you think the Crush issue means it has to get a little more negative before that?

No, we're looking at 1% to 2% .

On the bottler case sales. In North America?

In North America.

In North America, got it. Thanks, guys.

Thank you. Well, I'd like to thank everybody for joining the call today and for your continued interest in Dr Pepper Snapple.

And, ladies and gentlemen, that concludes the Dr Pepper Snapple first quarter 2011 earnings conference call. We appreciate your time. You may now disconnect.